Currency substitution in Romania

Lazea, Valentin and Cozmanca, Bogdan Octavian (2003): Currency substitution in Romania.

Abstract

The aim of this paper is to investigate the currency substitution phenomenon in Romania. We present the evolution of the DI (Dollarization Index) as it is defined by the IMF, the situation on the liabilities side and that of the banking sector. We assess the way in which the traditional functions of money have been affected by currency substitution. In the final part of this paper a demand for money function is estimated for Romania for a period between 1997:06—2003:03. This demand for money clearly demonstrates the existence of currency substitution between the domestic and foreign currencies. Also we test the stability of the model and conclude that despite a turbulent economic medium the demand for money function is stable.

• Item Type: MPRA Paper
• Language: English
• Keywords: currency substitution, money demand, cointegration, error-correction model, Romania
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money

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